By Barani Krishnan
NEW YORK (Reuters) - Oil prices tumbled 3 percent on Wednesday, with U.S. crude futures hitting three-month lows, as U.S. crude and gasoline stocks surged on weak demand during the peak summer driving season.
The U.S. Energy Information Administration (EIA) said crude stockpiles soared 1.7 million barrels last week, instead of falling 2.3 million barrels as forecast. Gasoline inventories rose 452,000 barrels, compared with analysts' expectations for a 40,000-barrel increase. [EIA/S]
Oil extended losses as the dollar (DXY) rallied after the Federal Reserve left interest rates unchanged while citing diminished near-term risks to the U.S. economic outlook that meant a potential rate hike later this year.[FRX/]
U.S. West Texas Intermediate (WTI) crude futures (CLc1) settled down $1, or 2.3 percent, at $41.92 a barrel. WTI's session low was $41.68, a level last reached on April 20.
Brent futures (LCOc1) fell $1.40, or 3.1 percent, to settle at $43.47 a barrel. Brent earlier dropped to $43.33, the lowest since May 10.
Reuters data also showed that WTI and Brent had inched closer to their 200-day moving averages. Breaching those could open the door for more prices drops, traders said.
"We will likely break through the $40 levels in days and weeks to come," said Tariq Zahir, crude trader and portfolio manager at Tyche Capital Advisors in New York.
"The bottom line is the street has gotten it wrong as far as the oil markets achieving supply-demand balance this year."
The EIA reported refinery crude runs fell 277,000 barrels per day last week as utilization rates fell 0.8 percentage point to 92.4 percent of capacity.
"A drop in refinery runs at the peak of summer driving season indicate refiners are dialing back amid faltering profit margins," said Matt Smith, analyst at New York-based oil cargoes tracker Clipperdata.
On Tuesday, the largest independent U.S. refiner Valero Energy Corp (N:VLO) said it expected lower refinery utilization over the rest of the year to counter slumping margins caused by record supplies of gasoline and diesel. BP's (L:BP) refining margins hit a six-year low in the second quarter and the oil major said margins would remain under significant pressure in the coming months.
Oil prices are still up about 60 percent from 12-year lows of $26-$27 in the first quarter. But the rally has faded since Brent and WTI breached $50 in May, on worries that oil may be headed again for a glut like that which forced prices off from highs above $100 in mid-2014.
Some market participants think the glut concerns are exaggerated.
"I think we will stay between $40 and $45," said Salvatore Recco, who helps oversee about $2 billion of client money, including in oil, at Gravity Investments in Denver, Colorado. "We'd only tell our customers to worry about the oil outlook when the central banks issue a serious downgrade to the economic outlook."